On any other day, we would start our story with a brief introduction about the company’s business operations. However, not today, because we have something more interesting to talk about.

PROMOTERS OF THE COMPANY

Raw Edge Industrial solutions limited is headed by a certain Mr. Bimal Bansal and his two sons Mr. Sourabh Bansal and Mr. Siddharth Bansal. While Mr. Bimal Bansal is the current Managing Director of this company, his two sons are part of the board and exercise their duties as non Executive Directors. The reason why we are bothering with any of this is because Mr. Bimal Bansal’s sons carry a lot of pedigree.

Mr. Sourab Bansal, the eldest, is a graduate of IIT Kanpur (B.Tech + M.Tech) with a degree in Industrial Engineering and Management and has a collective experience of more than 12 years in the field of Manufacturing

Siddharth Bansal has a degree in Engineering Physics from IIT Delhi and a Post Graduate Diploma in Management from IIM Lucknow. With over 10 years of experience in Manufacturing and Financial leveraging, including a stint at McKinsey, both sons form a formidable duo, atleast on paper.

So does that mean, you ought to drop your hats and invest in the company right away? Well maybe you would want to read the whole story before you start entertaining such ideas. Let’s start with what Raw Edge Industies does on a day to day basis.

WHAT DO THEY DO?

Back in 2005 the company was conceived with the idea of helping industries with procurement and supply of raw materials. Today, the company is involved in manufacturing, trading and providing transportation solutions to other manufacturing companies.

And to top it all off they provide transportation solutions and the company claims to have collaborated with over 1000 truck owners to achieve this.

INTERESTING TRENDS IN INCOME

Now at this point we must note that there are some very interesting trends in how income from these 3 verticals have progressed over the years.

While manufacturing turnover has steadily increased over the years, income from trading operations has been very erratic, especially during FY 12-13 when trading income fell from 46 crores to about 11 crores. While we are not quite sure why this happened, the DRHP tells us that this was the same year the company moved its operations to a new facility. Moving facilities shouldn’t ideally affect trading operations, at least not to this extent but we thought we would mention it anyway.

Another possibility is that the company made deliberate attempts to shift its focus towards other verticals because trading operations generally offer very thin margins and so we see the company’s share from manufacturing operations slowly increasing thereafter. Transportation income too has largely remained flat and during FY 17-18 saw a steep decline. Maybe it’s another sign that the company is increasing its focus on manufacturing
.

Two other reasons why we believe the company is moving towards manufacturing more seemingly comes from 2 indicators

Capacity Utilization : The company’s capacity utilization of its plant has steadily increased and is now inching closer to about 90%

Public Issue : The company wants to invest significant portion of the proceeds in setting up a new manufacturing facility with twice the existing capacity.

AGRICULTURE LAND OR NO AGRICULTURE LAND?

The company has gone ahead and bought a piece of agricultural land to set up this facility. However, the said agricultural land is yet to be converted into non agriculture land and we found out that any such conversion involves paying a fee to the government.

The company has stated that the obligation to pay any such fee and convert the land falls squarely on the seller and yet, despite the uncertainty involved in the transaction, the company has furnished an advance of 46 lakhs while the whole plot is said to cost about 50 lakhs.

But all that shouldn’t matter so long as the company is posting good numbers. SO how are the company financials looking

Well, right now the financials look very unremarkable. In 2013, the company posted revenues of about 66 Crores and suddenly the next year the company’s revenues halved after cutting down their trading operations. Since then it has been slow growth. From 33 Crores (FY 14) to 44 crores (Jan FY18) over 4 years, the financials do not evoke a lot of confidence.

Profits too have largely remained stagnant and look rather unremarkable. So, despite having a board with incredible pedigree they haven’t translated the same kind of pedigree across to the income statement.

And this is where we talk about that incredible lineup again. While it is true that the sons of Mr. Bimal Bansal are extremely accomplished it must be noted that their sons manage a business of their own; a company called Magicrete Solutions Private limited and we think they only play a bit part role at Raw Edge. Why?

MAGICRETE SOLUTIONS PVT LTD.

Because Magicrete is a business that happens to boast an annual turnover of over 100 Crores and it’s no easy task managing such a business Also, another point of interest is that about 20% of Raw Edge’s business comes from Magicrete Solutions (Jan FY 18). Here is an interesting table comparing total revenues with revenue accruing from sales to Magicrete Solutions.

So for a good portion of the company’s existence, significant parts of the revenue came from Magicrete, a group company run by Mr. Bhimal’s sons. And that’s when we realise our introduction only tells you half the story.

ISSUE DETAILS

The company is planning to raise funds through a fresh issue and an offer for sale. The promoters are selling 6,10,000 equity shares aggregating to about 4.3 Crores. Selling shareholders are Mr. Bimal Bansal (2,00,000 Equity Shares), Mrs. Bala Bansal (2,10,000 Equity Shares) and Mrs. Shweta Bansal (2,00,000 Equity Shares) ( forming part of Promoters and Promoter Group). The entire proceeds from the Offer for sale will be paid to the selling Shareholders. The rest of the money will be raised through a fresh issue.

The issue is priced at a PE of 37 and at that multiple, it’s not a cheap issue by an stretch of the imagination
.

So is the company on a growth path? Well, we don’t know. Atleast, until the company can sort out its manufacturing facility and start ramping up production we can’t say for sure. But if they successfully manage to scale up their operations maybe the highly accomplished board can take over and deliver on its promises

No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments.